investments are assumed to represent interest receipts or the equivalent, as contrasted with commercial accounts. In this connection it is important to note that during the last 2 years there was a distinct tendency on the part of American exporters to sell only for cash. Many American manufacturers operating on a small capital have been virtually forced to put their foreign business on a cash basis. In cases where the foreign-currency proceeds of sight-draft shipments became "frozen" during 1933, the accounts are being liquidated under the agreements referred to above. Liquidation of blocked-currency deposits through "black" (bootleg) and "gray" exchange markets was somewhat freer in 1933 than in 1932. Several countries permitted shippers of native products not ordinarily exportable to dispose of part or all of the foreign exchange created thereby, thus increasing the supply of exchange available on the unofficial market. Nevertheless, the supply of such exchange continued to fall far below the demand, and the spread between the official and the unofficial rates continued wide. Both exports and imports of United States merchandise increased approximately 30 percent during November and December 1933, as compared with the corresponding period of 1932. The net result of this change on outstanding international mercantile accounts cannot be statistically determined. The tendency toward cash sales by American exporters possibly minimized the assumed increase in the latter's accounts receivable held abroad. It is probable that in numerous cases the sales abroad were made in terms of foreign currencies rather than in dollars. Changes in the terms of purchase applicable to merchandise imports also tended presumably to alter the normal effects on outstanding credits due foreign exporters which arise from year-end changes in the volume of import trade. In view of the uncertainty attaching to the changes in the United States creditor-debtor position on international mercantile account, no attempt is made to estimate the net change, except to the extent that such net change is accounted for by funded accounts and by credits extended by the Reconstruction Finance Corporation in financing the sale of agricultural surplusses in foreign markets. While it is probable that the year's regular transactions, the "unfreezing" of blocked accounts, and the operations through unofficial markets resulted in additional liquidation of commercial accounts, it is not likely that the net collections not otherwise accounted for would be a very substantial item for balance-of-payments purposes. Allowance is therefore made in the balance of payments for an estimated inflow of commercial funds of $27,000,000, the net result of $34,000,000 collected and funded on outstanding accounts and a net extension of $7,000,000 by the Reconstruction Finance Corporation. LONG-TERM CAPITAL MOVEMENTS For the third successive year the international long-term capital transactions of the United States in 1933 yielded a net receipt of funds. The excess of net sales of long-term investments over purchases, however, was considerably less in 1933 than in 1931 and 1932. In 1933 it amounted to $49,000,000, as compared with more than $200,000,000 in each of the 2 preceding years. An important factor in the year's transactions was the large volume of international security dealings in outstanding issues. Other items were bond-redemption payments by foreigners to security holders in the United States and sinking-fund receipts from foreigners; also new publicly offered foreign issues amounting to $71,000,000. The year's long-term capital transactions are summarized in table 16. TABLE 16.-SUMMARY OF INTERNATIONAL LONG-TERM CAPITAL TRANSACTIONS IN 1933 Item A. CHANGES IN UNITED STATES LONG-TERM INVESTMENTS ABROAD 1. New foreign issues publicly offered (total nominal capital)... ... ... Deductions from above for: 2. Refunding issues... 3. Underwriters' commissions. 4. Net bond discounts.... Total deductions.... Net new capital (publicly offered issues). 5. New purchases of foreign issues through security markets. 6. New direct investments abroad and privately taken foreign issues (including certain funded amounts)......... Total new American investments abroad...................... Deduct: 7. Bond-redemption payments received from foreigners.. 8. Sinking-fund payments received from foreigners.... 19. Resale to foreigners of direct investments.... 10. Foreign stocks and bonds resold to foreigners through security markets.. Total deductions from new American investments abroad..... Net payments on transactions 1-10, inclusive_____ B. CHANGES IN foreign lonG-TERM INVESTMENTS IN THE UNITED STATES 11. American stocks and bonds sold to foreigners through security markets... 12. New direct investments in the United States.... Total new foreign investments in the United States.--- Deduct: 13. Redemption and sinking-fund payments to foreigners. 14. Repurchases of direct investments from foreigners.... 15. American stocks and bonds repurchased from foreigners.. Millions of dollars 71 60 1 61 10 685 91 786 41 82 50 565 738 48 760 7 767 50 580 Excess of receipts over payments during 1933 resulting from long-term international capital transactions........ 49 ITEMS TENDING TO INCREASE AMERICAN INVESTMENTS ABROAD In 1933, as in 1932, purchases of publicly offered foreign securities were unimportant as factors increasing American investments abroad. Such purchases, as recorded in table 17, amounted to over $72,000,000. After deducting refunding issues and issues for the Government of Puerto Rico, $11,000,000 is left as the total of new investments in foreign securities through public offerings. Underwriters' commissions and net bond discounts amounted to $1,000,000, leaving $10,000,000 as the net export of capital through these operations. Private takings of foreign securities by Americans in 1933 increased sharply over 1932 as a result of the funding of blocked accounts in Argentina, Brazil, and Uruguay, and of the funding of accrued interest on several Latin American and European issues. These operations, which are discussed more fully in the section on Interest, Dividends, and Commissions, exert no direct influence on dollar exchange. New direct investments were practically nil in 1933 because of uncertainty regarding business and monetary conditions at home and abroad. Foreign tariffs and currency depreciation had been important factors in stimulating the establishment of branch factories abroad in 1931 and 1932, but not in 1933. In addition, few American corporations were in a position in 1933 to expand their operations in foreign countries on an extensive scale. TABLE 17.-FOREIGN CAPITAL ISSUES PUBLICLY OFFERED IN THE UNITED STATES DURING THE CALENDAR YEAR 1933 ITEMS TENDING TO REDUCE AMERICAN INVESTMENTS ABROAD Bond-redemption payments in 1933 at $41,000,000 were unusually small. World economic and fiscal conditions did not favor such operations, which usually are largest when issuers are in prosperous conditions. Some German issues which under more favorable circumstances might have been retired were extended or converted, either because of the inability of the issuer to meet the obligation, or as a result of exchange restrictions. The conversion of the British 51⁄2-percent dollar loan, due 1937, into a 21⁄2 percent sterling issue, and of the Swiss 51⁄2-percent bonds, due 1946, into a franc issue, may be mentioned in this connection. A large part of those dollar issues had previously been repatriated. Both Governments took advantage of that fact, as well as of the monetary uncertainty in the United States, to convert these obligations into bonds bearing a lower rate of interest. American holders received new bonds instead of cash. The operation has some of the characteristics of refunding and some of redemption. Sinking-fund moneys received in the United States, aggregating $82,000,000, were about the same as in 1932, although they were much below previous years. Again this year the suspension of sinking funds by defaulting countries and the practice of turning in bonds to the fiscal agents of the loans in lieu of cash were responsible for the low level of cash receipts. The funds expended by foreigners for the $93,000,000 of bonds turned in for cancelation are included in the estimates of funds involved in the international securities movement, although there is no way of telling whether the purchases were made in 1933 or in other years. The figures for bond-redemption and sinking-fund receipts, as given in table 11, do not include refunded bonds or the moneys received and bonds retired on those portions of foreign issues that were originally sold in foreign countries, and on issues not held in the United States but for which American banks act as fiscal agents. The grand totals make allowance for service moneys received on foreign bonds purchased from Americans by foreigners. Par value estimates of American investments in foreign securities must be reduced by more than the amount of moneys and bonds received for redemption and sinking-fund purposes. The funds received were usually used to purchase bonds on the market at less than par. By subtracting the bonds turned in for cancelation and the portions of the British and Swiss issues that were converted by non-American holders, it is seen that $156,000,000 (par value) of bonds were retired by the use of $137,000,000 of cash. Germany profited most in this way, retiring $22,000,000 (par value) of bonds with $15,000,000 in cash. Furthermore, German issuers turned in more bonds for cancelation than all other issuers together$50,000,000 out of a total of $93,000,000 (par values). The resale of direct investments by Americans to foreigners was larger than in recent years on account of the sale of the large American investment in Boots Pure Drug Corporation (England) to an English syndicate and the repayment in 1933 of several short-term advances previously made by American corporations to their foreign subsidiaries. Inasmuch as such advances have always been carried with the direct investments and are not covered by any other set of estimates, the repayments are treated as long-term capital movements. As a matter of fact, they frequently assume this character by being repaid through the issuance of new shares to the parent company. This year the repayments were made in cash. ITEMS AFFECTING FOREIGN INVESTMENTS IN THE UNITED STATES New direct investments in the United States by foreigners are estimated at $7,000,000 in 1933. These investments were predominantly Canadian. No repurchases by Americans of direct investments previously held here by foreigners were recorded. No data are available which make possible an actual compilation of itemized schedules of sinking-fund or redemption payments on American securities owned by foreigners. Such payments have to be estimated by approximating the portion that bonds comprise of the total market value of foreign holdings of American securities. The aggregate item is roughly estimated, as in 1932, at $50,000,000. 1 INTERNATIONAL SECURITIES MOVEMENT With the exception of merchandise exports and imports, no class of international transactions in the United States balance of international payments has in recent years involved a larger volume of dollar settlements than the long-term security dealings between American and foreign investors. Although the underwriting of foreign dollar securities in the United States has been relatively unimportant since 1930, the international transfer of outstanding issues has continued on a large scale and has at times been stimulated by the very factors which have reduced new offerings to negligible proportions. The effect of the international security movements upon the balance of payments during 1933 is shown in the following estimates, based largely on data furnished by approximately 100 banks which acted as agents for their domestic and foreign customers in placing buying and selling orders and by 56 brokerage houses and security dealers which handled the orders directly for the buyers and sellers: NOTE.-Bonds issued by foreigners, payable in dollars, and American certificates representing foreign shares held on deposit abroad are foreign securities. Securities issued by corporations operating under an American charter are considered American securities, even though they may represent in large part assets held abroad. For the third successive year the international security transfers resulted in a net inflow of funds to the United States, in contrast with the trend during the period of heavy foreign dollar-security underwriting from 1924 to 1930. However, this inflow becomes virtually negligible after deduction is made of the net outflow of funds resulting from arbitrage operations, estimated at $40,000,000. The two most important items in the year's transactions were the purchases of American securities by foreigners and the purchases of foreign securities by Americans. Repurchases of foreign securities by foreigners and repurchases of American securities by Americans were of almost equal volume. It is impossible to determine to what extent the last two movements represented actual repatriations. In some instances the securities of a given country held in a second country have been purchased by investors in a third country. Foreign bonds sold by Americans to foreigners are not necessarily sold to residents of the borrower's country. On April 4, 1934, the Feuille Federale of Berne, in reporting on the conversion of the 52 percent Swiss Government dollar loan of 1924, stated that only about $150,000 of the original $30,000,000 issue was still in the possession of American investors. While the greater part of these bonds may have found their way back to Switzerland, it is not necessarily safe to assume that such was the case. |